Re Gazeta Wyborcza: Poland Has 500,000 Jobless People Under 25 Years of Age

Both the Balcerowicz Plan, with free prices, hawkish macroeconomic policy, free trade, radical privatisation, etc., and the Second Balcerowicz Plan, with de-bureaucratisation, fiscal discipline, low corporate tax rate, privatisation of public enterprises including banks, partial privatisation of pension, energetic privatisation of public utility, reinforcement of regulators, liquid labour market, low market interest rate for housing, etc., can be summarised to be an introduction of the Hayekian agenda, which is a combination of market-liberalism and hawkish policy with a low – preferably the minimum – level of what you call safety net.

Naturally, with the above agenda the competition among individual is encouraged in the domestic labour market. One may assume that the encouraged competition will improve the quality of the labour force, but this assumption is wrong.

Try and simulate the microeconomic kinetics within the labour market. In plain words, try and assume either that you were young kids or that you were parents of young kids. With the agenda there emerges a motive for higher education possible: Everybody wants to either go to college or let their kids to go to college, because by doing so they are the most likely to become winners of life. As a result there emerge two different types of young people: College graduates and others. – (1)

On the other hand, with the agenda of the Plans one may reasonably assume that the foreign capital (i.e. what Mr Marek Belka calls capital inflow) overwhelms the domestic capital in the domestic production. That is, domestic enterprises are increasingly owned by foreign capitals whereas the net import propagates as the output grows thus the consumption expands accordingly. In that case, the domestic production, owned by foreign capital, expect to either produce consumer-goods by cheap labour force on imported intermediate- and capital-goods or sell consumer-goods imported from abroad by cheap staff. Each foreign capital doesn’t need many college graduates for their activities of production within the Polish economy but needs as many cheap manual workers as possible. – (2)

By (1) and (2), a growing number of college graduates are unable to find job opportunities within Poland that they think deserve working for. As a result they choose to
1. stay at home to remain looking for ‘decent’ jobs as registered unemployed
2. stay at home to work with cheaper wages than they had expected
3. stay at home and give up looking for jobs at all
4. go abroad to find ‘decently-paid’ jobs
The second one must be extremely poor case indeed, because there they may highly possibly feel some sense of failure in life while some of their friends are working at better-paying employers. They will certainly turn their frustration against the government.

If I criticise Mr Balcerowicz’s view, he devotes himself so much to theoretical analysis that he makes light of factors related to human factors, especially human motivation. However, one should note that his ‘Plan’ was essential when Poland was struggling in a state of virtual insolvency circa 1990, when it had in any case to implement such a radical hawkish policy to recover the credibility of the Polish economy including the currency so that the economy could be stably financed again – initially by foreign capitals. He was, therefore, certainly the man of the times.

Certainly, his failure is that he tried to maintain this policy – to allure capital inflow more and more regardless of his intention (as you may find it against his intention when you read the agenda of the Second Balcerowicz Plan written in 1997) – when Poland got onto the second stage of development on which it had to foster the mass of domestic capitals that would directly invest in the domestic production. So, while I both look up to and infinitely applaud this genius for the bravery he showed during the transition era, I have to harshly criticise him at the same time: I feel sad, really.

Now that the growth of the consumption has long outclimbed that of the domestic capital, Poland has had to allure foreign capital either in the form of production capital and sovereign bond or, worse, in the form of shorter-term foreign debt including what you call hot money so that the gap was filled.

As a result, the investment, which equals the savings in amount, has expanded due to the capital inflow, and the Warsaw Stock Exchange has been virtually dominated by foreign capitals whereas the ever-strong consumption has been largely satisfied by either the imports or the consumer goods produced at home by foreign capitals.

At the same time, the domestic producers that export more goods (and services) have had to correspondingly import more intermediate- or capital-goods, because domestic capitals have failed to grow enterprises that would produce intermediate- or capital-goods. They’ve gone to speculation via the savings, because both the income velocity of money and the liquidity preference have been high due to the cheap capitals flowing into the Polish economy from abroad.

Are the Poles pursuing what you call the gentlemen-capitalism like the United Kingdom or United States? Do they really believe that Poland can adopt the gentlemen-capitalism? Well, to me it looks like following the Irish or Hungarian path.

The Poles should review its model of economic development as soon as possible. Maybe soon after the forthcoming elections. It wouldn’t be too late, because it hasn’t yet pegged the zloty to the euro. (Please refer to Mr Sobczyk’s entry ‘Poland on Euro Zone’s Menu?’ dated Mar 16, 2011, 11:11 AM, where I posted a comment regarding the peg.)

Regards,
Jan aka Jasiek
(I am not Polish despite the pseudonym).

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